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A proposal to abolish Ohio property taxes will increase volatility and cut funding for schools, a majority of economists said in a recent survey on the matter.
The group Citizens for Property Tax Reform is pushing a constitutional amendment to repeal the state’s property tax. Earlier this month, the Ohio Ballot Board signed off on a portion of the effort, saying that the amendment deals with a specific issue.
It is still far from becoming reality. Hundreds of thousands of registered voters have to sign verified petitions to get it on the ballot and then voters have to approve it.
Taxes of any sort are typically unpopular with those have to pay them. But those taxes support popular local services, such as schools, libraries and first responders.
In fact, some of those services are so popular that people at times overlook their reluctance. In May, all 13 library levies on Ohio ballots passed with flying colors.
When it comes to property taxes generally, people might not be so generous. But some experts say getting rid of them is a terrible idea.
“Many of the property tax reform proposals offered by policymakers, like assessment limits and tax swaps (including full abolition of the property tax), create more problems than they solve, distorting property markets and undermining long-term housing affordability,” the nonpartisan Tax Foundation said on its website. “Property taxes are the primary tool for financing local governments and the single largest source of state and local revenue in the U.S., helping fund schools, roads, police, and other services.”
Property taxes also play an important role in public finance, the foundation said, adding that they are “more efficient, pro-growth, aligned with benefits received, and generally better suited to municipal finance than any of the alternatives.”
Ohio economists appear to agree.
Scioto Analysis surveyed 16 of them, asking if they agreed that “replacing property taxes in Ohio with higher sales and income tax rates will reduce the volatility of tax payments for Ohio households.” Nine disagreed, just one agreed and the rest said they were uncertain.
In the comments section of the survey, many who disagreed said property taxes were more stable than income or sales taxes, which soar in good economic times and plummet in bad.
“Sales and income fluctuate with the business cycle,” wrote Kevin Egan of the University of Toledo. “Having property taxes, especially taxes directly on the value of the land (not what is built on it) is one of the first-best tax options due to the amount of land to be taxed does not change.”
A “land value tax” would tax land much more heavily than the buildings on it. Some economists like the idea because they say:
- A land tax would be fairer to lower-income property owners because they pay a greater percentage of their income for housing.
- By taxing land and not buildings you’d encourage development of vacant, blighted properties not by taxing their development, but instead by creating a disincentive to leave them dormant.
- Overall real estate values are prone to bubbles and other heavy swings due to market inefficiencies, while land values are more stable. Therefore, taxing only land would give government officials greater predictability when they budget.
The only economist who agreed that eliminating property taxes would be good for Ohio seemed to say the opposite in the comments section.
“This will mainly benefit wealthy older people who don’t work,” wrote Charles Kroncke of Mount St. Joseph University. “This will not help working class younger people who spend their income on consumer goods.”
The economists were also asked whether they agreed that “removing property taxes will decrease overall per pupil spending in Ohio’s public schools.” Twelve agreed, only one disagreed and three said they were uncertain.
“It depends on whether the government raises other taxes to replace the lost revenue,” said Jonathan Andreas of Bluffton University. “Because property taxes are more efficient than many other taxes that local governments levy, it can be hard to replace them so it is likely that revenues will go down which will hurt schools.”
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